Abstract: In this three year longitudinal study we are able to learn more about the relationship between cognitive function and costs of care, following patients treated for Alzheimer’s disease with the cholinesterase inhibitor donepezil. In our study sample of 435 patients we found that a cognitive decline, assessed with the ADAS-cog outcome score, induces a cost increase controlling for time. Furthermore, by differentiating between patients with respect to response to treatment we identified a group of responders, about one third of the sample, which showed an improved or stable cognitive function during the first 12 months of treatment. The difference in cost progression between these responders and the non-responders were estimated to cover the treatment costs for all patients. We found no predictors of treatment response other than men having a greater chance than women of being responders. We conclude that we are able to confirm previous findings of a link between cognitive decline and cost progression, and that treatment may lead to net cost savings.